MESSAGE
| DATE | 2009-02-27 |
| FROM | Ruben Safir
|
| SUBJECT | Subject: [NYLXS - HANGOUT] 24 percent increase in GNU Sales not satisfying Novell in the recession
|
Novell’s fiscal first quarter results were a mixed bag and Linux
invoices fell sharply as the company failed to sign big deals.
For the first quarter ending Jan. 31, Novell reported non-GAAP earnings
of $24 million, or 7 cents a share, on revenue of $215 million. Those
results were a penny better than Wall Street estimates. Net income for
the first quarter was $11 million, or 3 cents a share.
On the surface, Novell’s quarter
told a familiar
tale. Open platform sales, which are dominated by Linux offerings, were
$35 million, up 24 percent from a year ago. Other units had a mixed
performance. Novell CEO Ron Hovsepian said that “invoicing was below our
expectations in this weak economy.”
Hovsepian elaborated on Novell’s earnings conference cal
l.
Linux, viewed as Novell’s growth engine, sputtered in the quarter.
Hovsepian said:
Our Q1 Linux performance did not meet our expectations as our
pipeline coverage and conversion was overly reliant on direct sales
and sales cycles lengthened. Going forward, we are focused on
building our pipeline with and through partners and we will be
aggressive on pricing to gain market share.
Novell CFO Dana Russell noted:
Linux invoicing was $23 million, down 42%. As we have stated before,
our Linux business is dependent on large deals which may result in
some fluctuations of our quarterly invoicing. This quarter we did
not sign any large deals, many of which have been historically
fulfilled by Microsoft certificates. Today we have invoiced $199
million or 83% of our original $240 million agreement.
Add it up and it appears that the Microsoft reselling agreement
that put Novell’s Linux
business on the map has played itself out. Meanwhile, an aggressive
pricing strategy–for services attached to free software–can’t be good
for profit margins going forward.
On the bright side, Novell said it is rolling out SUSE Linux Enterprise
11 later in the quarter. That rollout may improve Novell’s Linux
invoicing fortunes.
Needless to say the Microsoft agreement gravy train was the big topic
among analysts covering Novell. A few nuggets gleaned from Novell
executives:
* Russell said that “customers certainly are price sensitive” and
Novell expects that the prices for Microsoft-Novell Linux
certificates are not going to hold.
* Demand generation for Novell’s Linux business is the company’s
responsibility–not Microsoft’s. The big problem was that Novell
was relying on big deals that failed to materialize.
* Invoicing for Novell’s Linux certificates appear to be moving back
to historical norms, said Russell. If that’s the case then the
first quarter hiccup will be an aberration.
Larry DignanLarry Dignan is Editor in Chief of ZDNet and Editorial
Director of ZDNet sister site TechRepublic. See his full profile
and disclosure
of his industry affiliations.
*Email Larry Dignan*
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